Teaching German

Business

German parliament rejects executive pay law ahead of election

The German parliament’s upper house, the Bundesrat, has blocked a draft law that would give shareholders a say in executive pay. The vote in the opposition-dominated Bundesrat came two days ahead of elections.

The German Bundesrat stopped the government's draft legislation on executive pay on Friday as the opposition parties, the Social Democrats and the Greens, used their majority in the upper house of parliament to vote it down.

The vote came two days ahead of Germany's national elections, meaning any further legislation will now have to be completely re-drafted by the new German government.

The draft, which had already passed the lower house of parliament, the Bundestag, in June, wanted annual shareholders' meetings to decide about pay deals and compensation structures for top executives in the companies. Currently, boards of directors at listed companies can largely set their own salaries.

The legislation foundered on the resistance from the opposition SPD, the Green Party and the Left Party, which all said the proposals were insufficient to curb the rise in executive salaries in recent years.

Instead, the SPD wanted to limit the tax deductibility of salaries from payroll expenses of listed companies as a more appropriate measure to achieve that goal, said Angelica Schwall-Düren, a senior MP of Germany's second strongest party.

Watch video01:34

German executive pay causes a stir

According to a survey released by the German Shareholder Protection Association (DSW) in July, executive earnings rose 2.5 percent in 2012, reaching pre-financial-crisis levels again after dropping in 2008 and 2009. On average, a board member in one of Germany's top 30 DAX-listed comanies earned 3.2 million euros ($4.3 million) a year. However, the the salaries gap ranged from about 1.1 million to 14 million euros.

The government draft came in response to a fierce public debate about executive greed in Germany. About four years ago it became known that banks were paying out huge bonuses and salaries to their top staff in spite of being bailed out with state money.

The opposition also used their last opportunity before elections to stop a proposed law against forced prostitution and human trafficking, introduced by Chancellor Angela Merkel’s government, saying the plans were inadequate.